Comments from Fed official feed expectations for Fed taper

SAN FRANCISCO (MarketWatch) — Gold futures closed lower on Monday, logging their first loss in three trading sessions, with overall strength in U.S. equities drawing attention away from the precious metal as comments from some Federal Reserve officials pointed to the likelihood that the central bank will soon begin to scale back its bond-buying program.

Gold for December delivery
US:GCZ3
fell $15.10, or 1.2%, to settle at $1,272.30 an ounce on the Comex division of the New York Mercantile Exchange after tallying a total gain of 1.5% on Thursday and Friday.

December silver
US:SIZ3
closed down 37 cents, or 1.8%, at $20.36 an ounce.

U.S. equity markets have attracted capital, “with further rotation out of safe-haven assets such as gold,” said Jeffrey Wright, managing director at H.C. Wainwright.

“We see further near-term pressure but only of a moderate extent on gold until equity markets pull back off record levels,” he said. Janet Yellen’s confirmation to head the Federal Reserve has likely been priced into the market in the near term and further economic news will impact the time table to begin tapering the central bank’s quantitative easing in 2014, said Wright.

Gold futures on Friday rode Yellen’s support for the stimulus program to their first weekly gain in three. For the week, gold added 0.2%.

However, separate comments Monday from William Dudley, president of the New York Federal Reserve, and from Charles Plosser, president of the Philadelphia Fed, likely fueled expectations that the central bank will begin scaling back bond buys sooner rather than later.

Dudley said in a speech to Queens College that the U.S. economy could be doing better and that anemic growth could give way to stronger growth over the next two years. Separately, Plosser suggested that it was time to bring the third round of QE to an end.

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A pullback in QE could provide support for the dollar, which in turn may pressure dollar-denominated gold prices.

On Monday, a gauge of U.S. home-builder confidence in November missed forecasts. Weaker-than-expected economic data tend to push back the timing expectations for a Fed taper.

“Investors are just reacting to incoming U.S. economic data releases from a tapering perspective and nothing else,” Chintan Karnani, chief market analyst at Insignia Consultants, said in an email from New Delhi.

Details on plans for economic reforms in China, among the world’s largest gold buyers, failed to provide much support, if any, for gold prices Monday. The Chinese government late last week announced detailed reform plans, with a 60-point list of policy tasks, tackling a wide range of issues from financial markets and state-owned enterprises to legal reforms and the one-child policy.

Barclays lead analyst Suki Cooper in a note Monday said “gold has been presented with a number of catalysts over the past year and in particular over the past two months, all of which have failed to reignite investor demand.”

Barclays analysts noted that the latest Commodity Futures Trading Commission data, for the week ending Nov. 12 — a week showing stronger-than-expected payrolls data and a surprise rate cut by the European Central Bank — revealed that investors had scaled back gold exposure in what they described as “the most aggressive reduction in positioning since March 2012.”

Gold exchange-traded-product holdings have so far fallen 13.6 metric tons in November, which implies a slower rate of redemptions than in October, the Barclays analysts noted.

Metals-mining shares were also lower, with the NYSE Arca Gold Bugs index
HUI, +3.05%
down 1.8% and the Philadelphia Gold and Silver index
XAU, +1.98%
down 1.7%.

Back on Comex, other metals finished broadly lower, led by percentage losses in platinum and palladium. January platinum
US:PLF4
fell $27.90, or 1.9%, to $1,411 an ounce, while December palladium
US:PAZ3
fell $15.90, or 2.2%, to $716.75 an ounce. High-grade copper for December delivery
US:HGZ3
ended at $3.15 a pound, down 2 cents, or 0.7%.

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